Abercrombie & Fitch 2003 Annual Report Download - page 33

$82.3 million, and $94.3 million in 2003, 2002, and 2001, respectively.
The effect of temporary differences which give rise to deferred
income tax assets (liabilities) was as follows (thousands):
2003 2002
Deferred tax assets:
Deferred compensation $10,208 $ 8,182
Accrued expenses 5,736 6,724
Rent 4,125 1,523
Inventory 1,717 2,960
Other, net – 124
Total deferred tax assets $21,786 $19,513
Deferred tax liabilities:
Property and equipment $(28,396) $(20,135)
Store supplies (9,384) (8,061)
Total deferred tax liabilities (37,780) (28,196)
Net deferred income tax liabilities $(15,994) $(8,683)
No valuation allowance has been provided for deferred tax
assets because management believes that it is more likely than
not that the full amount of the net deferred tax assets will be real-
ized in the future.
8. LONG-T ERM DEBT The Company entered into a $250 million
syndicated unsecured credit agreement (the “Credit Agreement”)
on November 14, 2002 to replace both a $150 million syndicated
unsecured credit agreement and a separate $75 million facility for
the issuance of trade letters of credit. The primary purposes of the
Credit Agreement are for trade and stand-by letters of credit and
working capital. The Credit Agreement is due to expire on
November 14, 2005. The Credit Agreement has several borrowing
options, including interest rates that are based on the agent bank’s
“Alternate Base Rate,” or a LIBO Rate. Facility fees payable under
the Credit Agreement are based on the Company’s ratio (the
“leverage ratio”) of the sum of total debt plus 800% of forward
minimum rent commitments to consolidated EBITDAR for the
trailing four-fiscal-quarter period and currently accrues at .225% of
the committed amounts per annum. The Credit Agreement con-
tains limitations on indebtedness, liens, sale-leaseback transactions,
significant corporate changes including mergers and acquisitions
with third parties, investments, restricted payments (including div-
idends and stock repurchases), hedging transactions and transactions
with affiliates. The Credit Agreement also contains financial
covenants requiring a minimum ratio, on a consolidated basis, of
EBITDAR for the trailing four-fiscal-quarter period to the sum of
interest expense and minimum rent for such period, as well as a
maximum leverage ratio. Letters of credit totaling approximately
$42.8 million and $41.8 million were outstanding under the Credit
Agreement at January 31, 2004 and at February 1, 2003. No borrow-
ings were outstanding under the Credit Agreement at January 31,
2004 or February 1, 2003.
9. RELATED PART Y T RANSACTIONS Shahid & Company, Inc.
has provided advertising and design services for the Company since
1995. Sam N. Shahid Jr., who serves on A&F’s Board of Directors,
has been President and Creative Director of Shahid & Company,
Inc. since 1993. Fees paid to Shahid & Company, Inc. for services
provided during the 2003, 2002 and 2001 fiscal years were approxi-
mately $2.0 million, $1.9 million and $1.8 million, respectively.
These amounts do not include reimbursements to Shahid &
Company, Inc. for expenses incurred while performing these services.
On January 1, 2002, A&F loaned $4,953,833 to its Chairman,
pursuant to the terms of a replacement promissory note, which pro-
vided that such amount was due and payable on December 31, 2002.
The outstanding principal under the note did not bear interest as the
net sales threshold, per the terms of the note, was met. This note
was paid in full by the Chairman on December 31, 2002. This note
constituted a replacement of, and substitute for, several promissory
notes dated from November 17, 1999 through May 18, 2001.
10. STOCK OPTIONS AND REST RICT ED SHARES Under the
Company’s stock plans, associates and non-associate directors may
be granted up to a total of 24.0 million restricted shares and options
to purchase A&F’s common stock at the market price on the date of
grant. In 2003, associates of the Company were granted options
covering approximately 552,000 shares, with a vesting period of
four years. Options covering a total of 84,000 shares were granted
to non-associate directors in 2003. Options covering 64,000 of these
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